Conflicting Signals on Energy and Taxes

The U.S. House is expected to vote Wednesday on H.R. 5351, the Renewable Energy and Energy Conservation Tax Act of 2008. The legislation raises taxes on oil and natural gas production by about $18 billion, targeting one sector of the energy industry to subsidize others — wind, biofuels, solar power, etc.

The tax increase is supported by Democratic lawmakers disappointed in the Senate’s rejection of similar provisions in last year’s energy bill.

Meanwhile, out in North Dakota, state Democratic legislators are introducing tax cuts for oil production.

Rep. Dorvan Solberg, D-Ray, will be introducing legislation to extend the tax holiday for new wells drilled in the Bakken Formation.

“The drilling incentives have increased the amount of drilling, and the development has been a real positive for area communities as well as oil companies,” Solberg said. “I would like to see this activity continue. The benefits for the state are well-documented and that includes my own District 2.”

The legislation passed in 2007 had a sunset clause to end the holiday. Solberg’s legislation would drop the sunset and give a tax holiday on the first 75,000 barrels, an exemption to the extraction tax the state collects.

How does this work, exactly? Tax cuts are needed to encourage oil production at the state level, but tax increases are necessary at the federal level? Seems…inconsistent.